Hershey Company: Strategic Management and Expansion

Abstract

Hershey Foods, founded in 1894 is a chocolate manufacturing company. The company’s over 100 years operations has seen it transformed from a North American based single unit company into a global company with several subsidiaries under its brand name. This was due to its ability to expand through strategic acquisition, and diversification of its products. The ethical management style and strict organization structure have been its source of strength. Some years back saw the company face several challenges including product recall, and legal issues as a result of management and Community Trust disagreement over the proposed sale. However, with adequate management structure and strong work ethics, the company has managed to penetrate the competitive global market with its appealing products.

Introduction

Hershey Foods was one of the pioneer chocolate makers in the history of chocolate products. Since it was founded in the 19th century, the company has expanded, diversified its products range, and gained competitive advantage in both chocolate and non-chocolate products, including mints and chewing gums. Its ethical business dealings have favored the market penetration initiatives, subsequently increasing its brand identity as well as profitability. The company has approached management issues with ethical culture and structure, with proper hierarchy developed throughout its management system. This paper analyzes the progress of Hershey Foods company has made since it was founded in 1894.

Company background

Hershey Foods Corporation is a North America-based chocolate manufacturing company. The company that has been in existence for more than 100 years is currently the biggest chocolate manufacturing company in North America. Its global operations for many years have seen the company acquire status as one of the most recognized brand, with its popular chocolate bars. Apart from the chocolate brands, the company has also established its non-chocolate goods and penetrated the niche market with a lot of success.

Headquartered at Pennsylvania, Hershey was founded in the year 1894 by Milton Hershey. It was simply known as Hershey Chocolate Company, a sub-unit of Lancaster Caramel Company. Currently, it’s one of the leading chocolate companies in the world. Hershey Company has also ventured into hospitality industry, with established businesses in resorts, parks and many other recreational facilities.

Hershey’s Present Status

Hershey Foods currently manufactures chocolate and candy products. Under the current CEO David West, the company has a revenue turnover of US$5.30 billion and operating income of US$762 million, according to its 2009 financial year report (Malon 1). In the same year 2009, the company registered a net income of US$436 million with total equity turnover of US$ 720 million (Malon 2). Hershey has about 14000 employees running its multi-billion dollar operations in its subsidiaries all over the world.

Hershey’s big market share has been promoted by its series of acquisitions of other businesses, and diversification of its chocolate and non-chocolate products. For example, the company’s acquisition of Y&S Candies in 1977 was the beginning of its strategic expansion strategies. Later, the company acquired Luden’s brand, the manufacturer of cough drops in 1986, helping them to diversify their products to increase their market share. Other notable acquisitions were that of Mauna Loa Macadamia Nut Corp. in 2005, and Dagoba Organic Chocolate in 2006 (Malon 2). These acquisitions defined their growth and expansion in the global arena, making them one of the most prominent companies of the world.

The Organization Code of Ethics, Culture and structure

The organizational structure of Hershey is clearly elaborated as per the diagram 1 below. Well defined roles of each management office help it organize its activities as well as plan any organizational change in a logical and easy manner.

Under these management offices are over 14, 000 employees, spread all over its global networks. Working under the philosophy of maintaining excellence, the employees are distributed under the management that forms part of its ethical management strategy. The company’s corporate and management guidelines are put under renewal every year. To ensure transparency in its management and financial dealings, the independent directors have been made the majority, hence creating a sense of autonomy in transactions. This has been emphasized by creating independent members of the audit committee as well as adoption of a team that handles risks and finances.

Hershey Food Corporation organizational structure.
Fig. 1: Hershey Food Corporation organizational structure (Atul 19).

Even though accessing Hershey’s organizational chart is denied by the company management, the positions of the present executives suggest that the company’s management structure is “centralized, functional structure with no divisional presidents” (Atul 20). Considering its size and intention to further penetrate the global market, they need decentralized management structure. This will allow product differentiation and market segmentation easier.

The Challenges and how it has maneuvered Through the Changes

The legal restriction in Hershey Trust Company to sell some of its shares in Hershey Foods Corporation was one its major challenges. This occurred when the Hershey community protested, forcing the then Pennsylvania Attorney General and other senior judges to nullify the plans (Atul 4). It also saw the 7 Hershey Trustees were removed through voting due to their effort to have the company sold. Others were subsequently forced to resign and their places taken over by new appointees (orter 3).

The other challenge was an incident that led to its chocolate product recalls in 1998, and later in 2008. In 1998, several 100g-chocolate made from milk were recalled after some complaints about lack of proper content labeling (Coffey 1). Specifically, the products were found to lack the almond name among the labeled product contents, despite laboratory tests indicating that almond traces existed in the final product. The incident later led to these products being sold to raise funds for charity. These challenges coupled with intense competition from other companies like Nestle and Archer Daniels Midland has made it difficult to build a clean-sheet of reputation in the past years.

However, the hardworking nature of Hershey executives has seen the company build its reputation in both technology and distribution techniques in the chocolate manufacturing and supply business. Its ability to adopt e-commerce has increasingly played key role in marketing and distribution of its product brands. This means that they adopted both intranet and extranet to place their products within the reach of its customers, distributors, and partners. For example, the introduction of user access privileges was instrumental in helping the company manage its sales data (Atul 20). This subsequently helped them save time in the marketing initiatives as information on market needs could easily be tracked through the system.

To increase its share of different niche markets, and gain competitive advantage, Hershey has managed to manufacture several brands of products. It’s through this that it has managed to maintain competitive advantage as well as stay a float during hard economic times. The company has also improved the quality of its products and changed some of its product contents to appeal to the increasing demands in the global markets. This is why they introduced lactose and milk fat into the new milk chocolate product (Coffey 3).

The Culture and Future Goals of Hershey

The company future goals and objectives are based on its Mission statement- “Bringing sweet moments of Hershey happiness to the world everyday” (orter 1). This mission statement is based on the desire to produce quality products, empowering employees, increased collaboration, building sustainable shareholding, developing more corporate social responsibility initiatives with the local community.

Although the company is committed to empowering employees by very good working conditions of international standards, its major weakness is based on its centralized structure of management. They also have limited global entry and distribution channels, thus hampering their global market penetration. However, with increased competition in the American market, the company has no better alternative than to adopt the global expansion strategy. This will also demand that they develop divisional structure of management, each with its president and management team.

Conclusion

The consumption rate of chocolate products continues to soar all over the world. Studies have shown that chocolate consumption will continue to increase in many years to come, considering the approval that it is good for human health. This has reduced the initially held perception in the late 80s and early 90s that its consumption has led to increased cases of obesity in the United States and the world in general. With adequate strategy supported by the increased technological advancements and globalization, the company is expected to grow further and acquire more markets.

Works Cited

Atul, Jain. Case Analysis of Hershey Foods Corporation. New Delhi. Fostiima Business School, 2009.

Coffey, Laura. “Chocoholics sour on new Hershey’s formula”. MSNBC, 2008. Web.

Malon, Chris. “Hershey Foods”. 2006. Web.